WARNING NOTE SOUNDED

Dominion, Volume 32, Issue 260, 1 August 1939, Page 10

WARNING NOTE SOUNDED

Need For Dominion To Live Within Income

VIEWS OF CHAMBERS OF COMMERCE

The opinion that the Government, like the people, must live within its income, and must confine its expenditure to what it can get in ordinary revenue and what it can borrow in genuine savings is . expressed by tlie Associated Chambers ef Commerce in a statement issued yesterday. The statement outlines proposals for the economic rehabilitation of New Zealand. Ihe adoption of those proposals alone will ensure freedom from inflation, it says. Whatever steps are taken now, if the proposals are not adopted and rigorously adhered to, the present difficulties, which arc the direct consequence of inflation, must be expected to recur or become accentuated. “We consider it is imperative at the present juncture to sound a warning note that the danger confronting^ the Dominion lias not been removed, and the financial position of the country appears to be steadily retrogressing, the statement says. “The success of • Mr. Nash at Horae cannot be regarded as establishing the means whereby internal polities that contain many unsound features may be continued unabated in New Zealand. The finance for which -Mr. Nash has arranged provides no permanent solution of the difficulties that led to his seeking it, but gives instead a period of respite for the ! adoption by New Zealand of measures of economic adjustment, without which the country still has serious difficulties ahead of it. Essential Steps. “it is true that, as Mr. Nash has stated, New Zealand has not been required to give Britain any pledges in respect to her future financial policy, but it remains necessary for the Dominion to — . ‘•(1) Repay the short-term credit it has obtained. . „ . •■(2) Arrange its financial affairs so as to obviate the necessity—already mentioned by Mr, Nash as a poss - bility for 1940—0 f again seeking credits from Britain, if only for the reason that Britain, however willing, may not be able to repeat what has been done on this occasion ; and “(3) To raise the credit standing of New Zealand so as (a) to assist the £17,01)0,000 loan conversion operations, and on the most favourable terms, and (b) to revive confidence and encourage the investment in the Dominion of local and foreign capital. “We consider that as the direct cause of the last £12.000,000 or more by which overseas funds were reduced, and therefore of the necessity to restrict imports, was the Governments inflationary borrowing from the Reserve Bank (borrowing which converted the bank’s liquid assets in London to frozen assets in New Zealand) these advances should be repaid as soon as possible. Their repayment would, within a short time result in reconversion of the bank’s frozen assets in New Zealand to liquid assets in London, and hence in a substantial increase in London funds. A free exchange market might then be restored and the conditions provided in which capital recently exported might be attracted back to New Zealand. „ , , “In addition, New Zealand must learn the lesson of the unpleasant results that, have followed and that must inevitably follow inflation. The normal economic activities of the Dominion including production, trade consumption, and the provision of productive employment, cannot be carried on effectively unless exchange is free from the present type of rigid control. Overseas funds, which constitute the working balance essential for the operation of overseas trade, must therefore be protected against the extraordinary claims and the consequent depletion which are the direct result of inflationary practices. Avoiding Inflation. “To avoid inflation the Government must, at all costs, stop the creation of new money, and must leave genuine production to create its own finance, as it always has done and always will do under a monetary system free from objectionable interference. Establishing Sound Conditions. “There are other internal matters which, in our opinion, need revision in order to establish sound conditions within the Dominion. Without entering into detailed treatment of the effects of certain lines of Government policy that are being pursued, we would make our recommendations as follows: —

“One of the principal national necessities is the stimulation of exports. Since rising costs of production in New Zealand have been one factor tending to check exports, together with tlie fact that the continuance of heavy Public Works activity in a time of high export prices has been inimical to economic equilibrium, it is essential that conditions of Public Works employment be less attractive than employment in farming and other productive pursuits. “Though tlie outflow of capital from New Zealand lias been checked by regulatory methods, tlie inflow of capital for investment has been deterri-d. We urge that the Government encourage Hie return to New Zealand of investment capital by removing excessive Government regulation and restriction on commerce and industry, and by removing the arbitrary limits on interest rates.

“The present standard practice is to make awards for a period of 12 months. A substantial increase in this duration period would enable business to plan ahead, and action in this direction is accordingly recommended. Also, it is considered that there should be greater flexibility in hours and conditions of inidustrial employment s]>ecially in those industries whicli contribute to Ihe building-up of London funds.

“Since the present weight and incidence of taxation imposes a heavy burden of overhead costs on industry, particularly on primary industry, it is essential, if production is to be maintained and expanded, for that burden to be lightened. “An attempt should be made to increase the population of tlie Dominion by attracting suitable types of immigrants.”